Obtaining British citizenship while holding “non-dom” status

British citizenship confers significant rights on those who hold it, including the ability to live, work and conduct business in the UK without restriction. It also allows for relatively easy travel around the world, participation in the UK’s political process, and the passing on of citizenship rights to subsequent generations. Unlike various forms of permanent residence (such as indefinite leave to remain or settled status), British citizenship is a legal status which cannot be lost as a result of a period of absence from the UK and one which confers greater security for the future.

It is no surprise, then, that many long-term residents of the UK are now looking to take up British citizenship. However, before taking any steps to acquire British citizenship, individuals should consider how this may impact their tax status in the UK.

Tax vs immigration definitions

First, it is important to note that while immigration law and tax law share certain terminology, these terms can have very different meanings in their respective contexts. For example, while one may be deemed resident in the UK for tax purposes, it does not necessarily follow that this person has residence rights in the UK for immigration purposes and vice versa.

These nuances are important to understand and assess when assessing a person’s legal position and planning for the future.

Tax: non-domiciled status

Non-domiciled or “non-dom” status describes a UK resident whose permanent home (or "domicile") for tax purposes is outside the UK. UK tax resident non-doms are typically individuals living in the UK who, as defined by the relevant tax provisions, have not chosen to live here permanently or indefinitely. Under a special regime, they can currently choose to pay UK income tax and capital gains tax only on income and gains that are generated in or brought to the UK. Non-UK income and gains are therefore tax free provided they remain outside the UK. In parallel, only their assets situated in the UK are within the scope of inheritance tax (IHT). See our recent article here for a more detailed overview.

Aagin, it is important to note that non-dom status refers to a person's tax status, and has nothing to do with their nationality, citizenship or residence status, although it can be affected by these factors.

With a view to filling a purported £20 billion “black hole” in the nation’s finances, the new Labour Government has pledged to scrap the non-dom tax regime, though the current rules will remain in place until 6 April 2025. In the meantime, an individual’s domicile may affect any citizenship application that they make (we explain this further below). While an application to become a British citizen does not mean a person will automatically acquire British domicile, there may be circumstances where becoming a British citizen may change a person’s domicile to British. It is therefore important that tax and immigration factors are aligned and any citizenship application is carefully prepared. Holders of non-dom status should therefore carefully consider their position before applying to naturalise as a British citizen.

As the current regime for non-doms will continue until 6 April 2024 and covers the 2024/2025 tax year, an applicant’s status under the current regime is likely to be relevant to their naturalisation application until they file a tax return for the 2025/2026 tax year. 

When does a person hold non-dom status?

There are two ways in which a person may be considered a non-dom:

• Domicile of origin: everyone acquires a domicile of origin at birth. This is generally their father’s domicile if their parents were married when they were born. Otherwise, they will acquire their mother’s domicile. If their parent’s domicile is outside the UK, they will be a non-dom, even if they were born in the UK.
• Domicile of choice: if a person over the age of 16 chooses to leave the country of their domicile of origin and take up tax residence in another country, they will acquire a domicile of choice in that other country if they form the intention to live there indefinitely, as defined by the relevant tax provisions. Intention is the key factor here and it is possible to live in a country for an extended period of time and even acquire citizenship in that country on some occasions, but not form the necessary intention to acquire a domicile of choice there.
  
  

The key point is that a person’s domicile may change to the UK if they acquire a domicile of choice in the UK (a subjective test based on the person’s intentions). These factors therefore need to be considered when preparing a Brith citizenship application and risk assessment is essential. This risk assessment will vary on a case-by-case basis and will depend on the specific circumstances of each applicant.

When is domicile status relevant to naturalisation?

If an applicant is married to a British citizen, their domicile status is not relevant to their naturalisation application.

If they are not married to a British citizen, a person may seek to naturalise as a British citizen if they can demonstrate five years lawful residence in the UK and show that they have held permanent residence, as defined by immigration laws, in the UK for at least 12 months before applying. Permanent residence includes settled status and Indefinite leave to Remain.

In such cases, the applicant must meet certain other criteria including a “future intentions” requirement. The main purpose of the “future intentions” requirement is that those wishing to be naturalised as British citizens should not already have decided, or intend, to break their links with the UK.

An applicant will usually be deemed to meet the “future intentions” requirement by confirming to the Home Office that they intend to have their principal home in the UK. The Home Office may, however, make further enquiries if there is reason to doubt the applicant’s future intentions. Such reasons may include where the applicant is over the absence requirements for a British citizenship application, the applicant’s close family or partner is living abroad, or where there is evidence that they have accepted an offer of employment overseas.

Information may also come to the Home Office’s attention that HMRC regards an applicant as domiciled abroad for tax purposes. Having a non-UK domicile necessarily implies that an applicant does not intend to remain in the UK indefinitely. However, this should not mean that they cannot meet the criteria of future intention for British citizenship purposes, which is to intend to make the UK their principal home for the time being, or even for the foreseeable future, while also not intending to remain here indefinitely.

In such cases, the Home Office may request the applicant’s permission to contact HMRC to review the applicant’s “Domicile Enquiry” questionnaire, which (if it has been completed) may throw some light on future intentions. This is unlikely to happen unless there are other reasons for the Home Office to doubt that the “future intentions” requirement is met. However, because of the way the guidance is worded, it is theoretically possible that an applicant’s tax situation will be investigated even if there are no other reasons to doubt their future intentions. This is an important factor to consider and, where appropriate, preventive steps can and should be taken from a tax perspective. Likewise, this should be considered when applying for British citizenship, and the application should be prepared accordingly to minimise this risk.

Remittance basis and impact on British citizenship applications

If a person is non-domiciled, they may choose to claim the “remittance basis” on their tax return. Under the remittance basis an individual is not liable to UK tax on their worldwide income and capital gains. Instead, they are liable to UK tax on UK-source income and gains and on their foreign income and capital gains only when they bring (or “remit”) these to the UK. 

After you have been resident for seven out of the last nine tax years there is an annual charge of £30,000 for claiming the remittance basis, increasing to £60,000 after 12 years’ residence. The regime ends after 15 years, at which point an individual becomes “deemed domiciled” for all tax purposes.

If you choose not to claim the remittance basis, you will instead be subject to UK tax on your worldwide income and gains and your non-dom status is currently only likely to impact your liability for UK IHT. This is because non-doms are only liable to UK IHT in respect of their assets in the UK, while UK domiciled or deemed domiciled individuals are subject to IHT on their assets worldwide.

The way this interacts with British citizenship applications is as follows.

If you are a resident non-dom in the UK but have never claimed the remittance basis on your tax returns, your non-dom status is less likely to affect your naturalisation application even if the Home Office request permission to speak to HMRC. This is because, despite technically being non-domiciled, you have not confirmed to HMRC your intention to live outside of the UK. 

You should, however, be aware that HMRC might, depending on your circumstances and how your British citizenship application is presented, view the information provided in your naturalisation application as an indication that you have acquired a domicile of choice in the UK (potentially affecting your exposure to UK IHT). However, this risk can be avoided or at least significantly minimised with careful planning and current presentation in your British citizenship application. We therefore strongly advice that you seek advice before filing an application for British citizenship. 

Final thoughts

To summarise, it is entirely possible, and indeed, often welcome, for resident non-doms to obtain British citizenship. Depending on the circumstances, for many, acquiring British citizenship will not trigger tax implications. There are other instances where a British citizenship application may give rise to tax implications or tax investigations, both of which are undesirable outcomes to be avoided. It is therefore very important they seek immigration and tax advice before proceeding with an application to naturalise as a British citizen to assess whether any risks exist and, if so, take steps to mitigate these risks through careful planning and preparation.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, September 2024